A recent article on Yahoo! News detailed the stories of six people who found themselves deep in debt. These stories are good examples of success, if consumers will address their problems and take steps to extricate themselves from their financial difficulties.
The first couple had three children, ages 8, 12 and 15, and an annual income of more than $100,000. When the recession hit, they lost almost half their income.Talk about falling off the much talked about “fiscal cliff.” Unfortunately, like many people in their situation, they didn’t cut back on expenses.
Soon they found themselves more than $50,000 in credit card debt and were unable to make the minimum payments. Each month the balance climbed higher and higher when the monthly payments didn’t cover the interest. Fortunately, they sought the services of a not-for-profit credit counseling agency and entered into a debt management program designed to repay their debt.
The DMP succeeded in reducing their interest rates, some of which were as high as 32 percent, to rates as low as 7 percent. Their monthly payments were $1,400 per month and the program was designed with a goal of becoming debt-free in only four years. The family went from wearing designer jeans to buying them at thrift stores or on eBay. They halted their expensive cable and cut their energy bills significantly by installing a programmable thermostat, using energy-efficient light bulbs and weatherizing their windows and doors. They cut their Christmas gift spending by $200 and bought used appliances for a fraction of what they would have paid for new. They splurged on a trip to Hawaii, when the husband, who managed a remodeling business, remodeled a friend’s kitchen in exchange for frequent flyer miles.
After six years of being a “stay-at-home” mom, the wife decided to take a job, which, unfortunately, proved, not only to be unrewarding, but monetarily insufficient after paying day care and additional insurance. She took a second more lucrative job, but worried that she was no longer connecting with her children. On a rare day, when she needed to pick up her child from school, the staff refused to allow her to do it, because they didn’t recognize her as the parent. Her third attempt at employment utilized more of her education and proved to be more successful, both monetarily and time-wise.
At last, after four years, the couple made their final monthly payment, which resulted in paying off a total of $66,376.07, which included both principal and interest. The debt management program had saved them thousands of dollars in interest and years of debt, if they had continued to pay only minimum payments. (Check out your credit card statements to show how long it takes to pay off debt, when paying only minimum payments, and how much interest you will have paid with your current interest rates. This disclosure is a result of the Card Accountability Responsibility Disclosure Act, known as the CARD Act, passed by Congress in February 2010).
Yes, there were sacrifices made by this family to make their new DMP payments, but they are now debt-free and have an additional $1,400 to invest each month going forward. The moral of the story is, if you are having trouble getting out of credit card debt, take steps to gain control of your finances by seeking counseling from a Certified Consumer Credit Counselor at a not-for-profit agency member of the National Foundation for Credit Counseling. The counselor will advise you how to work towards a DMP, designed to free you from credit card debt in five years or less. It may not be easy, but scores of families have achieved their debt-free goals using this program.
Next month I will tell you how a divorced father of three girls succeeded in overcoming debt.
• Virginia Peschke is executive director of Consumer Credit Counseling Service of McHenry County based in Woodstock. Questions on any aspect of credit, debt or mortgages are welcome at 815-338-5757.